Update on current board issues: August 2012

Audit committee issues

FASB seeks input on disclosure framework

As part of its efforts to improve the effectiveness of disclosures in financial statement footnotes, the Financial Accounting Standards Board (FASB) has proposed a disclosure framework.

The FASB believes that establishing a framework for disclosure is a first step before it can make any specific changes to existing disclosure requirements. It then plans to use the framework to possibly modify existing disclosure requirements and write new ones.

"Many stakeholders have expressed concerns about the relevance and sheer volume of information in notes to financial statements, and that some information is either missing or difficult to find," FASB Chair Leslie F. Seidman said. "Therefore, the FASB is looking to improve its own procedures for establishing disclosure requirements and to provide a way for reporting organizations to exercise judgment about which disclosures are relevant to them."

In its invitation to comment, the FASB addresses such topics as:

  • A decision process to help the standard-setter establish disclosure requirements that address relevant information
  • Flexible disclosure requirements that could be adapted by each reporting organization (company) to focus on relevant information
  • A judgment framework that could help each reporting organization determine which disclosures are relevant
  • Organization and formatting techniques that could make the information users need easier to find and understand

Those seeking to comment are urged to do so by November 16.

The FASB will hold an educational webcast on Wed. Sept. 5, 2012 from 1-2pm EDT entitled IN FOCUS: The FASB Disclosure Framework Project.

For more information on the FASB disclosure framework invitation to comment, read PwC's In brief: FASB solicits input on ways to improve disclosure effectiveness.

FASB explores a revised impairment model for financial assets

The FASB earlier this month decided not to go forward with the so-called "three bucket" impairment model for financial assets. Instead, it will explore a revised approach.

A recent PwC In brief: FASB decides to explore a revised impairment model for financial assets spells out the three bucket model as well as the revisions the standard-setter will consider. Under the three bucket impairment model, financial assets would initially be placed in “bucket 1,” where credit reserves would be established for only those assets expected to experience a loss event in the next 12 months. As credit risk deteriorates, assets would then move to “bucket 2” or “bucket 3,” where credit reserves would be based on a lifetime of expected losses, irrespective of when the loss event is expected to occur.

The board considered whether implementation guidance could adequately clarify the objectives of the model. The board concluded that even with improved definitions for the key terms, there would likely still be concern over whether the model results in credit reserves that faithfully represent the credit risk of the portfolio. As a result, the board directed its staff to explore a model that incorporates the concept of expected losses, but applies that concept to all financial assets held and uses a single measurement approach.

The FASB hopes to share its findings with the International Accounting Standards Board in early fall.